Did you recently learn that someone appointed you to be the Trustee of a trust they created? If this also the first time you have ever served as a Trustee? If so, you probably don’t know what to expect or where to begin. Although the administration of every trust is unique, the Roseville trust administration attorneys as the Northern California Center for Estate Planning & Elder Law offer five important things to remember if you are a Trustee.
Trust Administration Basics
The overall job of a Trustee is to administer the trust as well as to protect and manage the trust assets. If the trust is a living trust, the administration of the trust begins the moment the trust agreement takes effect. If the trust is a testamentary trust, administration of the trust begins right after the death of the Settlor. With a living trust, the Settlor should have already funded the trust with sufficient assets to carry out the trust purpose. In the case of a testamentary trust, however, funding the trust can be a bit more complicated. Because the Settlor recently died, the Settlor’s estate must go through the probate process. As a general rule, assets owned by a decedent must pass through probate before they can be distributed to the intended beneficiaries and/or heirs of the estate. Assets held in a trust, however, bypass probate and are distributed according to the terms of the trust without any judicial oversight. Assets may first need to marshalled and transferred into the Trustee’s name before the administration can actually begin.
Things for a Trustee to Remember
- You have a fiduciary duty to the trust and the trust beneficiaries. In essence, this means that you must treat the trust assets with more care than you would your own assets. Often, this duty is violated when a Trustee fails to understand and/or use the “prudent investor standard” which requires you to avoid risk, guard the trust principal, and be more careful with the assets and income than you would be with your own assets and income. In addition, you must put the best interests of the beneficiaries first when making decisions related to the trust assets. Violating your fiduciary duty can even lead to legal action against you that could result in personal liability.
- You must abide by the trust terms as they are written. When administering the trust, your personal opinion should not be considered. This is can be very difficult to avoid as we are all used to considering our own opinion when making decisions; however, as the Trustee, everything you do must further the Settlor’s intended purpose and must abide by the trust terms unless a term is illegal, impossible, or unconscionable. As such, your own opinion isn’t really relevant.
- Recordkeeping is a crucial Trustee function. The Trustee must keep very detailed records of all trust business. These records can help resolve conflicts or complaints regarding beneficiaries or can prove that you have done your job properly to a court if a complaint ever gets that far. Trust records may also be needed to satisfy the IRS or to substantiate the sale or purchase of trust assets. The bottom line is that it is always better to keep too many records than to not keep enough.
- Be aware of potential conflicts of interest. Avoiding the possibility of a conflict of interest developing is one reason why it is often wise to appoint a professional Trustee. Nevertheless, if you find yourself as the Trustee of a trust created by someone you know, it likely means that you are personally acquainted with the beneficiaries of the trust as well. Make sure you do not create a conflict of interest as a result of those relationships. Keep your job as Trustee separate from your personal relationships with the beneficiaries.
- Consult with a trust attorney. The job of Trustee frequently involves the need to understand complex legal and financial concepts with which the average person is not familiar. For this reason alone it is always wise to retain the services of an experienced trust administration attorney if you have been appointed as a Trustee. Moreover, you could be held personally liable for mistakes you make if you forego the assistance of an attorney, making it even more important to have a legal professional on your side to provide you with advice and guidance.
Please download our FREE estate planning checklist. If you have additional questions or concerns about serving as a Trustee, contact us at the Northern California Center for Estate Planning & Elder Law to find out today by calling (916)-437-3500 or by filling out our online contact form.